Tax Prep Tips: A Step-by-Step Guide for SMBs

How to Prepare for Tax Day:

A Step-by-Step Guide for Businesses

With tax season rapidly approaching, many business owners are realizing that it’s time to roll up their sleeves and get organized.

The right preparation strategy can help you avoid common pitfalls, maximize deductions and file with confidence. Here’s how you can take control of your tax preparation process.

Tax Day Prep in 5 Simple Steps

Following a structured process can make tax preparation less overwhelming and help ensure no important details slip through the cracks. This step-by-step approach will keep you organized and may help you maximize your return.

1. Gather Your Documents

Keeping all your documents in one place is one of the simplest — and most important — tax return tips. Start your tax prep by gathering and reviewing the following documents:

Income statements: W-2s, 1099s, gross receipts, sales records and other income documentation
Expense records: Receipts for business expenses such as travel, office supplies and equipment
Bank and credit card statements: Documentation of business-related transactions to support your deductions
Payroll information: Employee payroll records and related tax documents (if applicable)
Previous year’s tax return: Use as a reference to ensure consistency and accuracy of your current filing
Loan and mortgage documents: Business loans or property mortgage details
Investment accounts: Statements for stocks, bonds or other investment holdings
Charitable contributions: Documentation of business-related charitable donations

2. Analyze Last Year’s Tax Return

Reviewing last year’s federal tax return may provide valuable insights into your current tax situation. Start by comparing your income sources to last year’s return to ensure you’ve accounted for every revenue stream. Then examine the deductions you claimed, such as mortgage interest and property taxes. This may help you identify any missed tax credits and prepare accurate income tax projections. This detailed review helps prevent mistakes and may uncover additional tax credit opportunities.

3. Review Your Financials

A thorough financial review before filing can significantly impact your tax outcome. Start by reconciling all accounts, ensuring every transaction is properly categorized. Pay close attention to:

Asset purchases and depreciation schedules
Changes in business operations or structure
Quarterly estimated tax payments
Business expenses that might qualify for deductions
Year-end profit and loss statements
Balance sheet changes from the previous year

Not only does this review help ensure accurate tax filing, but it’s also an opportunity to get a clear picture of your business’s health year-over-year, providing insights for future business planning.

4. Maximize Deductions and Credits

While you may be familiar with the most common tax deductions, several powerful tax-saving opportunities are often overlooked. For example, Section 179 expensing allows you to deduct the full purchase price of qualifying equipment bought during the tax year, rather than depreciating it over time.

In addition, energy-efficient improvements, such as installing solar panels, energy-efficient lighting or HVAC systems may provide immediate tax benefits and long-term cost savings. And if you’re a small business engaging in product development or process improvements, you may qualify for R&D credits.

Even small deductions can add up, so don’t miss out on these opportunities. To maximize your potential return, be sure to keep detailed records of all potential deductions and save documentation that supports your claims.

5. Consult With a Tax Professional

If you handle your books and financials, you may be tempted to file your taxes on your own. However, working with a financial advisor or tax professional is often well worth the investment. A qualified tax advisor brings strategic expertise and industry-specific knowledge. They may offer valuable tax savings tips and help you uncover unique opportunities to maximize your tax refund or avoid paying a steep tax bill.

Important Tax Prep Tips

Once your tax return prep is done, you can breathe a sigh of relief. But the work’s not quite done yet. There are a few more tips that can help you avoid common tax frustrations.

File Early

If you plan to file your taxes early, you’ll have extra time to resolve unexpected complications. Filing your returns early in the tax season also helps prevent criminals from filing fraudulent returns using your business information. And if you’re getting a refund, you’ll likely receive your funds sooner, too.

Double-Check for Errors

Small mistakes can lead to big headaches, potentially delaying processing or triggering unwanted audits. Pay close attention to details such as employer identification numbers (EINs) for contractors and vendors, and carefully verify all calculations, especially when transferring numbers between forms. When you finish your tax returns, review everything one more time before submitting them.

Prepare for Payment

Depending on your tax situation, there’s a chance you may owe money to the IRS. If you know a tax debt is coming, you may consider making estimated tax payments throughout the year to avoid penalties and spread the tax burden. To enhance security and reduce the risk of check fraud, consider processing your payments or refunds via ACH, which provides a safe and efficient way to handle transactions with the IRS. And if you’re hit with an unexpected tax burden, you may be able to take advantage of the IRS’ various payment options.

Keep Copies of Your Filed Tax Returns

Maintain digital and physical copies of your returns and supporting documents for at least seven years. Consider using secure, encrypted cloud storage to protect against physical damage, and implement a regular backup strategy for all tax-related files. Creating an organized system can also make it easier to retrieve specific documents if the need arises.

Create a Strong Financial Foundation for Your Business

Effectively managing your business finances makes tax season simpler. And having the right banking partner can give your business a strong foundation all year long. Learn more about how Banc of California’s commercial and business banking services can help support your success and keep you ready for tax season, year in and year out.

The information provided in this article is for general informational purposes only and is not intended to constitute tax advice. Banc of California does not provide tax, legal or accounting advice, and you should not rely on the content as a substitute for professional advice. We strongly encourage you to consult with a qualified tax professional or advisor regarding your specific situation. Banc of California is not responsible for any actions taken based on the information provided in this article.

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